Deck 2: Audit, Assurance, and Quality Control Standards

Question 1

Which of the following is the first task that the auditor must accomplish to demonstrate proficiency in auditing?

A)Identify the evidence relevant for the audit of assertions that are made by management in its unaudited financial statements and notes.
B)Design an audit program to obtain sufficient appropriate evidence about assertions management makes in financial statements and notes.
C)Recognize the underlying assertions made by management in the financial statements and notes.
D)Evaluate the evidence gathered in the performance of the audit program and decide whether management's assertions conform to generally accepted accounting principles and reality.

Answer 1

C

Question 2

The general standard of GAAS relates primarily to the personal integrity and professional qualifications of auditors.

Answer 2

True

Question 3

An auditee's failure to give permission for the new auditor to contact the predecessor auditor may be a warning sign that the client has something to hide.

Answer 3

True

Question 4

The primary purpose of obtaining an understanding of the company's internal controls in the financial statement audit is:

A)To help the auditors develop the audit program
B)Make suggestions to management to improve internal controls.
C)Obtain direct sufficient appropriate audit evidence to afford a reasonable basis for an opinion on the financial statements.
D)To determine whether the company has changed any accounting principles.

Question 5

The fourth reporting standard requires the audit report to comment on the consistency of the accounting principles used in preparing the financial statements.

Question 6

Assurance standards require a sufficient understanding of the internal control system be obtained to plan assurance work.

Question 7

The assessment of materiality has a pervasive impact on the audit.

Question 8

The concept of professional skepticism is based on the assumption that a potential conflict of interest always exists between the auditor and the management of the business under audit.

Question 9

Control risk is

A)The probability that a material misstatement could occur and not be prevented or detected by the company's internal control policies and procedures.
B)The probability that a material misstatement could occur and not be detected by the auditor's audit procedures.
C)The risk that the auditor will not be able to complete the audit on a timely basis.
D)The risk that the auditor will not properly control the staff on the audit engagement.

Question 10

Practice inspection is something a new auditor does as part of their training program.

Question 11

Control risk is the risk that an accounting firm's quality control standards will not be adequate.

Question 12

An external auditor is conducting an audit of the financial statements of Camden
Corporation.The external auditor is expected to

A)Certify the correctness of Camden's financial statements.
B)Make a 100% examination of Camden's records.
C)Give an opinion on whether Camden's financial statements are fairly presented in all material respects.
D)Give an opinion on the attractiveness of Camden for investment purposes and critique the wisdom and legality of its business decisions.

Question 13

Practice standards are a general set of standards intended to guide the audits of financial statements.

Question 14

Auditors try to achieve independence in appearance in order to

A)Maintain public confidence in the profession.
B)Become independent in appearance and in fact.
C)Comply with the generally accepted auditing examination standards.
D)Maintain an unbiased mental attitude.

Question 15

The CICA Handbook recommendations are a step by step list of procedures auditors have to complete for each engagement.

Question 16

A standard unqualified audit report should be dated:

A)No later than the date when the auditor obtained sufficient appropriate audit evidence supporting the auditor's opinion.
B)No earlier than the date when the auditor obtained sufficient appropriate audit evidence supporting the auditor's opinion.
C)As at the end of the year being reported on.
D)As at the end of the year the audit work was done.

Question 17

Which of the following statements best explains an unqualified report opinion?

A)The financial statements contain a departure from GAAP.
B)The auditor was unable to complete the work necessary to form a complete opinion.
C)The auditor was not aware of any reasons not to believe the statements are correct.
D)Based on the evidence obtained the auditor believes the statements are free of material error.

Question 18

Although weblogs are a rapidly growing area of the internet, the information is frequently biased, anecdotal, and speculative.Consequently, weblogs are too unreliable to be useful in identifying potential financial statement disclosure risks.

Question 19

According to GAAS, the overall objective of a financial statement audit is:

A)To enable the auditor to express an opinion as to whether the financial statements are prepared in accordance with generally accepted accounting principles.
B)To reduce audit risk to an acceptably low level.
C)To determine whether the financial principles adopted by management in preparing the financial statements are acceptable.
D)To obtain reasonable assurance that the financial statements taken as a whole are free from misstatement, whether due to fraud or error.

Question 20

Auditors must still take responsibility for their opinion about conformity with GAAP when they give an adverse opinion.

Question 21

An assurance engagement is one in which a CA is engaged to

A)Issue a written communication expressing a conclusion concerning a subject matter for which an accountable party is responsible.
B)Provide tax advice or prepare a tax return based on financial information the CA has not audited or reviewed.
C)Testify as an expert witness in accounting, auditing, or tax matters, given certain stipulated facts.
D)Assemble prospective financial statements based on the assumptions of the entity's management without expressing any assurance.

Question 22

A report giving conclusions about a firm's compliance with quality control standards is typical of which of the following?

A)Practice inspection.
B)Quality inspection.
C)Peer review.
D)Quality review.

Question 23

In planning an effective audit which of the following occurs first?

A)Determine the acceptability of the financial reporting framework used.
B)Decide whether to accept or retain the client.
C)Understand the auditee's business.
D)Assess materiality.

Question 24

The reporting standards require that the auditor explicitly report on whether the financial statements:

A)Contain adequate disclosure of all material matters.
B)Are in accordance with GAAP.
C)Used principles that are appropriate for the circumstances.
D)Were prepared on a consistent basis with the comparative year.

Question 25

According to IFAC, which of the following is not one of the elements of quality control?

A)Independence.
B)Supervision.
C)Acceptance and continuance of clients.
D)Due professional care.

Question 26

Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of

A)Objective judgment.
B)Independent integrity.
C)Professional skepticism.
D)Impartial conservatism.

Question 27

CICA Handbook S.5025 "Standards for Assurance Engagements" differs from S.5100 "Generally Accepted Auditing Standards" in that the assurance standards

A)Contain no requirement to obtain an understanding of the auditee's internal control system.
B)Do not require technical training and proficiency.
C)Do not require planning for attestation engagements or supervision of accountants and consultants who perform the work.
D)Do not require a report that "states the character of the engagement."

Question 28

Which of the following statements is not a reporting standard for an assurance engagement?

A)A conclusion whether the assertion is presented in conformity with established or stated criteria.
B)A statement of whether the practitioner has significant reservations about the engagement.
C)Identification of the assertion(s) being reported on.
D)An indication by the accountant of responsibility to update the report.

Question 29

Several sources of GAAP consulted by an auditor are in conflict as to the application of an accounting principle.Which of the following should the auditor consider to be the most authoritative?

A)CICA Handbook.
B)CICA Exposure Drafts.
C)Industry practice.
D)Federal legislation.

Question 30

In establishing a quality control system, which area should be of a secondary nature?

A)Creating an independence and objectivity checklist.
B)Creating a program for continuing professional education.
C)Creating an internal review process.
D)Controlling access to client files.

Question 31

For the audit of a for profit company, materiality should be set:

A)To 5% of profit or 1% of sales
B)By the field auditor once they begin to gather evidence.
C)By the client's board of directors who represent the shareholders.
D)Based on both quantitative and qualitative criteria.

Question 32

Williams & Co., a large international CA firm, will be subject to an external peer review.The peer review will most likely be performed by

A)Employees and partners of Williams & Co.who are not associated with the particular audits being reviewed.
B)Employees and partners of another CA firm.
C)Peer review staff of the Ontario Securities Commission.
D)Peer review staff of the CICA.

Question 33

The mix between controls testing and substantive testing:

A)Will affect the effectiveness of the audit.
B)Will affect the efficiency of the audit.
C)Will affect the results of the audit.
D)Will affect the profitability of the audit.